Self Employed Bankrupt

thewilf

Hi All,

Hopefully a quick one.

I am currently in full time employment of 30k a year. Looked at things and rationalised finances and decided bankruptcy is for me, just waiting for appointment at CAB to confirm and so can say have investigated it at hearing, taken advice etc...

Issue is I want to go self employed, have a business idea with clients lining up. This will generate same as yearly salary in first couple of years so not trying to hide anything from OR or skip out on payments etc... I want to do this as in a few years company will grow given demand and bring in more than potential salary increases and lead to more income in the future.

Any guidance on how this might be seen by OR? Leaving paid employment to go self employed before bankruptcy? Given situation will be probably be made redundant within 6 months anyway.

Also majority of clients want to pay yearly contract up front, approximately 3 10k contracts for the years service. Would this be seen as credit or not as it is payment for the year? Also would the OR want to take this upon going bankrupt? It is essentially my years earnings pre-tax in one lump not spare cash, if they took it I would have to work for free on those contracts for the year.

I have no issue with multiplying outgoing by 12 and taking payment for IPO from that contract payment as that is fair and means I am just paying in one lump rather than 12 payments.

Any help or suggestions much appreciated.

Cheers
Will

OutofDebt-NOT-OutofDanger

thewilf wrote: »

Hi All,

Hopefully a quick one.

I am currently in full time employment of 30k a year. Looked at things and rationalised finances and decided bankruptcy is for me, just waiting for appointment at CAB to confirm and so can say have investigated it at hearing, taken advice etc...

Issue is I want to go self employed, have a business idea with clients lining up. This will generate same as yearly salary in first couple of years so not trying to hide anything from OR or skip out on payments etc... I want to do this as in a few years company will grow given demand and bring in more than potential salary increases and lead to more income in the future.

Any guidance on how this might be seen by OR? Leaving paid employment to go self employed before bankruptcy? Given situation will be probably be made redundant within 6 months anyway.

Shouldn't be a problem - the OR can't dictate how you work or what you are paid. They will only deal with the circumstances that are there at the time.

Also majority of clients want to pay yearly contract up front, approximately 3 10k contracts for the years service. Wish mine had done that :rotfl:
Would this be seen as credit or not as it is payment for the year? Not too sure - technically you "owe" your clients the work so you may have to disclose BR status but I'm sure someone more knowledgable than me will confirm shortly.

Also would the OR want to take this upon going bankrupt? It is essentially my years earnings pre-tax in one lump not spare cash, if they took it I would have to work for free on those contracts for the year. Again not too sure, but if you can prove to the OR that this is payment in advance (copy invoice/agreement) I would think it should be OK.

I have no issue with multiplying outgoing by 12 and taking payment for IPO from that contract payment as that is fair and means I am just paying in one lump rather than 12 payments.

OR would probably still look to do a monthly IPA as although your income is fixed your expenses aren't so may not be in your interest to pay up front. I believe the OR would estimate your monthly IPA and review regularly to see if the amount needs adjusting.

Any help or suggestions much appreciated.

Cheers
Will

Only other potential issue is getting a business bank account while BR - you will need to look into this as there aren't many BR friendly banks who also offer business accounts to BR. The only one I know of is Think Banking but you can't pay cheques in - charges wise they are actually cheaper than most business accounts (except standard accounts normally have a period of free banking).

sniggings

changing jobs is not a problem, as for the payment up front issue, I can't see it being classed as credit as it's money given to you for a service.

My guess, is as you say, your expenses will be worked out over the year and any excess taken.

I'm sure someone will be along soon with a better answer/ non guess.

I would very much doubt you will have any problems.

thewilf

Cheers for that.

I know its great they want to pay upfront, it because of changes with my industry, sales and mergers etc... finding a lot want to spend as much of current owners money as possible before sale incase times get tight after sale lol. That's the reason I ask as I need to move quickly if am going to do it.

The issue is disclosing BR would affect business incoming as it would be seen as a bad thing.

That's fine I don't mind paying monthly just thought it might help them with payments etc... one issue is as I would be self employed at first I wouldn't have a business bank account, it would be a separate personal account in my name for a few months so can't afford for it to be frozen really. If I explained the situation I would just have to hope they don't freeze it.

As an alternative, a friend who knows about situation etc... has offered to have an account in her name initially until clear of restrictions etc..., anyone think this would be seen as dishonest? I am not a dishonest person just trying to do my best to provide for my daughter in future, no longer with mother which is part of the reason for BR.

I will be as honest and clear as humanly possible with the OR as have nothing to hide, just don't want to make sure everything goes smoothly. Would set up as Ltd company if it wouldn't get closed as soon as went BR.

sniggings

If I were you I would open a nationwide account just before going BR, tell your OR when you get to speak with them after BR, I spoke with mine, within 2 mins, she asked me what account I needed for work, I told her I just had opened it for after BR, she said that was fine, she would not need to go into that but they still need to tell the bank, nationwide didn't close it, they were fine too but they could, so after BR Barclays are ok with BR people, I openned one there the same day as going BR (after BR) told them and they were fine with goiving me a basic account with a debit card, co-op are good too, so a bank shouldnt be a problem.

You only have to tell someone you are BR when still undischarged and the credit is for more than £500 or after discharge if they ask.
Them paying you is not credit.

There are some rules on being a director, not sure on that though.

OutofDebt-NOT-OutofDanger

The only issue with personal bank accounts is that they expressly state in the T&Cs that they can't be used for business purposes.

If you were being paid monthly the bank probably wouldn't notice but they're much more likely to notice £30k being deposited and ask questions!

debtinfo

Hi The wilf, in terms of going self employed, there is no problem in that, but i do forsee a few problems in the way you want to do it.

First you need to understand how bankruptcy actually affects a business. If you start the business before bankruptcy and accept those upfront payments it will be a problem, the reason being that the bankruptcy closes the business down on the day of the bankruptcy and makes an accounting of the assets and debts at point in time. So the money that has been paid up front will be taken as an asset regardless of the fact that there is still work to be fulfilled, the clients would have a claim for the work yet to be done but that just sits with all your other creditors in the bankruptcy, im sure that this is not what you want to happen. You can start in the same line of work the day after the bankruptcy hearing but the law is quite clear that this is a new business without the assets or respnsibilities of the old business which died on the bankruptcy date.

So option 2 - ie. you put of starting the business until after the bankruptcy date and they then pay the lump sum for 12 months work. In this case you are accepting credit of more than £500 each (because you have taken the money in advance of doing the work) and so you could only do this if you disclose that you are a current bankrupt.

In the above case the OR probably would avaerage the earnings out into 12 segments and base any IPA on a notional monthly income.

The only other way i can see it working is by accepting payment on a monthly basis, which i know you dont want to do but it is the only way for the clients not to lose their payment and for you not to have to disclose the bankuptcy (ps if they ask you directly then you need to disclose the bankruptcy anyway regardless of the way they are paying you)

thewilf

Hi all, thank you for your advice,

I have a smaller contract which should be coming to fruition shortly for 5k gross, obviously tax and NI to come out of that.

I need to do some repairs to my car which will cost about 1k, normally wouldn't bother and sell the car but as BR is choice to be made wouldn't get to keep a higher value car, currently it is worth 1400 and as need it to get around for work and get daughter, drop her off at nursery etc... should hopefully be able to keep the car so don't mind paying to have the work done.

There are some other debts, backlog of council tax etc... (council aware and happy to wait till payment) that I need to pay out of that.

I also need to invest in a new laptop for the role I will be doing self employed, writing computer programs and using some specialist software so will be purchasing that and should be classed as a tool of the trade (can't do job without it). The remainder would be used to pay BR fees leaving a small surplus which I understand the OR would take as an asset. Would you recommend waiting to take on the major contracts until after BR as then it is all dealt with post BR and account etc... should be ok to continue. Essentially I could take payment for this small contract, which is for work already completed and delivered, and then go BR and begin the major contracts. Hopefully getting them to agree to pay month in arrears so its not credit, its for a service already delivered.

Also I give my ex a proportion of my salary for my daughter, would it be ok in your guys opinion for me to do this with this lump sump payment before BR. I don't want to be seen to be hiding anything from the OR as I'm not trying to.

I really wish that I could speak to the appointed OR in advance because it would really help me understand how I can work all this so that it is as transparent as possible.

One last question, obviously I set up now, take the small contract and use as above, completely transparently. Will the OR take the money set aside to pay the tax and NI bill as that is obviously government due to the government and don't want to be seen as skipping out on what I owe the government as well.

Cheers for all you help,

Just hope that any others in the same position can use this as a reference as I know it has been difficult to find answers, directly to the questions I'm asking even using the search facilities and Google.

Cheers again
Will

sniggings

Remember you are only allowed a car valued at around £1000, so if yours is worth more than that best not spend £1k on repairs.

Giving money away to your daughter is a no no I'm afraid.

paying child support will not be a problem at the correct amount.

thewilf

Hi,

Cheers for that, probably put that across wrong about my daughter, I meant give my ex the proportion of the income I am required to under the arrangements for % of income using csa guidelines.

Cheers for the heads up on the car, I though it was 1400 as a limit although I am hoping I can argue the additional 400 as I am going to be driving to clients etc... I need something presentable, I know people have had this point accepted before ref impressions etc...

Hope this all goes well, anyone know about the tax aspect, don't want to skip out on money owed to government in tax etc...?

Cheers
Will

lifebeginstoday

When you go make sure your car is needed for business, family trips won't matter. As for tax everything up till the day you go is 'included in the order as is everything up till the next tax year (if self employed)'.